Quilter has been ordered to compensate a bereaved husband after he received advice to transfer into Quilter’s pension and funds when he sought advice to access his tax free cash to spend time with his late wife who was in poor health.
In May 2016 the client, Mr S, approached his adviser to seek advice on accessing his tax free cash from his Scottish Widows retirement account, according to a judgement posted on the Financial Ombudsman Service (FOS) website.
His adviser was an appointed representative of Intrinsic Wealth Limited, which is now Quilter Wealth Limited.
The adviser recommended Mr S transfer to an Old Mutual plan, now Quilter, and redirect his contributions to it.
In August 2016, after taking tax free cash of around £43,000, the transfer took place. The advice cost an initial fee of £3,099 and they arranged ongoing advice costing 1% per annum.
Independent or restricted
The Ombudsman, Gideon Moore, considered a number of issues when reviewing this part of the case.
First, he noted the adviser recorded that his firm, Total Financial Services (TFS) was independent and “able to offer advice and plans from the whole of market”. However, a ‘Keyfacts’ document given to the client said TFS offered restricted advice from a panel of providers and it was owned by Old Mutual Wealth, now Quilter.
The suitability report meanwhile said that while the firm was restricted to limited products and providers, due to the client’s needs the adviser had researched the wider market. The FOS, however, found that while the adviser did run a Defaqto search the criteria were highly restricted so only Old Mutual and Aegon were options.
“I can’t see how this search would be of much use unless the adviser could see where Mr S’s existing provider, Scottish Widows, sat in relation to these more favoured offerings,” the FOS judgement said.
In December 2017 the adviser stated he was no longer independent.
Cost of transfer
The FOS then went on to say that “irrespective” of the adviser’s status it needed to consider whether the advice given provided sufficient value for money when the total cost is taken into account.
In this section he noted the fact find says Mr S was seeking a ‘more modern’ platform which was potentially cheaper and several options were considered.
Mr S and the FOS doubt the extent the client was “driving these discussions” and Moore said they “seem to reflect what the adviser through Mr S should do” particularly since Mr S had approached his adviser just to withdraw tax-free cash and no evidence suggests otherwise.
The adviser said the Scottish Widows charges for the product and fund was 0.68% pa, which was more expensive than Old Mutual’s but “not by very much”, according to the judgement.
The fee was the adviser was said to be the same at 1% per annum for ongoing advice, but the Ombudsman noted the “extra impact of the initial change”.
“I think the overall result is somewhat confusing as to whether Mr S would in fact be saving anything at all by transferring,” the judgement read. “And that’s problematic because I think the benefit of him transferring is questionable in this case.”
Investment advice
In December 2017, as part of the ongoing advice service, the adviser recommended Mr S switch from a Vanguard fund into the Quilter Investors Cirilium Balanced Portfolio.
The reason for the switch was set out in two suitability reports, but it is unclear which was sent. The reports say the client wanted to achieve better fund performance through active funds in wider asset classes.
The FOS judgement said it is unclear on the correct charge of the fund at the time but material suggests it would be “considerably more expensive” than the Vanguard fund that charged 0.24%.
The Cirilium fund was also underperforming at the time.
“I am not suggesting that Quilter should not be able to recommend funds with which it has a connection (providing that is disclosed to the investor),” the judgment said. “But in this case, recommending an underperforming fund which also costs more, without adequately justifying why Mr S was not better staying in his existing fund, does become more of a problem when it seems more likely to me that Quilter’s group of companies would benefit from that recommendation.
“I don’t think it matters that the adviser was not, personally, incentivised to recommend the Cirilium fund.”
Quilter responses
The FOS outlined many of its views in a provisional decision which Quilter responded to.
The judgement provided a summary of the firm’s response which included: there were “unsupported claims” by the client; the suitability report shows that in 2016 the client was discussion future income requirements; the initial advice cost does not mean the advice was unsuitable; there was no conflict of interest because Mr S understood the connection between the companies and evidence suggests that Mr S was driving discussions for the changes made.
Compensation
Ultimately the FOS judgement sided with Mr S and said Quilter must compare the performance of the client’s investment if he had remained in the Scottish Widows fund. It gave instructions on how to calculate the performance and pay it out.
When it came to the compensation the Ombudsman also highlighted the adviser “could have arranged the payment of tax-free cash from Scottish Widows before considering whether a long-term switch of the remaining funds was in Mr S’s interests”.
As a result of the current decision Mr S felt that he did not make best use of his remaining time with his wife.
He told the FOS: “I’m not bitter nor angry about this but the realisation of what we may have been able to do deeply saddened me. However, this will not overshadow the precious memories of our last few months together.”
Quilter had offered £300 for distress and inconvenience and the FOS were “satisfied” with the payment saying “I don’t think it would be fair or reasonable to hold Quilter responsible” for the “very unfortunate timing”.
